External shocks and exchange rate regimes in Southeast Asia: A DSGE analysis

Ibrahima Sangaré

Economic Modelling, 2016, vol. 58, issue C, 365-382

Abstract: This paper investigates the choice of the appropriate exchange rate regime in the context where corporate debt is denominated in foreign currency. To address this issue, we build a small open economy DSGE model that incorporates financial frictions and alternative currency denominations of debt. We estimate the model using data from the five individual founding members of ASEAN and compare the welfare performance of four exchange rate regimes (floating, managed floating, target zone and fixed exchange rate). We find that the flexible exchange rate welfare dominates other regimes, whether debt is denominated in domestic or foreign currency. This finding suggests that the expenditure switching effects outweigh the balance sheet ones due to the countries' degree of trade openness.

Keywords: Exchange rate regimes; External shocks; Currency denomination of debt; Southeast Asia (search for similar items in EconPapers)
JEL-codes: E3 E4 F3 F4 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:58:y:2016:i:c:p:365-382

DOI: 10.1016/j.econmod.2016.06.004

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